How to Complete Due Diligence When Purchasing an Online Business

How to Complete Due Diligence When Purchasing an Online Business

For every online giant like Amazon, there are several smaller online startups that have the potential to grow into a large multinational corporation. Unfortunately, the vast majority of these startups will end up being abandoned or failing before they reach their true potential. 

A common reason why these failures happen is that the owner is unable to dedicate the time and energy it takes to grow an online business. So even if the creator of an online business has a great product or service idea and has developed effective business tactics to help get results, they might still end up selling their company simply because it becomes too much for them to handle. 

This is the perfect chance for another entrepreneur to swoop in and purchase the online business for a low price. However, before they start putting in any offers, they first need to ensure that the business is worth it. Here is how someone can complete the due diligence steps that should be completed when purchasing any online business.

Look at the Books

Financial due diligence is a huge part of any business deal, especially when it comes to purchasing an entire business. One of the biggest components of financial due diligence is looking through the accounting books. This is done to ensure that there is nothing troubling or out of the ordinary. 

There are a lot of potential red flags that could be located in the books. One of the main things they are looking for is trends or patterns in the records of revenue and profits. Ideally, the online business should demonstrate that they have been steadily climbing in both revenue and profits recently. It is even better if they have been doing so since they first started. 

Some minor drops in revenue are fine because this is their trial and error phase at the start. However, it is a bad sign if they have not achieved steadily rising profits in the last few months. If a business does not have a model that allows them to get sustainable revenue and profits, then it could be that the whole thing is a house of cards that only needs one big shake-up to come along and completely ruin the business. 

Another thing that should be looked at is the source of the company’s revenue. If it is all being directly achieved through one main product or source, then this is not good. 

A business with only one single source of revenue is far more likely to experience major periods of financial hardship. However, if a company has diversified itself and achieved many sources of revenue, then, even if one of them ends up failing, they should still be fine by supplementing their profits from the other sources. 

Check the State of Any Licenses

Many online companies obtain licenses for various products or other assets that only last for a certain amount of time. Therefore, it is important for the potential buyer to look at the company’s various licensing agreements. If they are temporarily licensing the rights to a certain trademarked item and this license is about to expire in a couple of months, then they need to ensure that the cost to renew it or the consequences of it expiring will not greatly affect the value of the business. 

Confirm Ownership of Assets

Depending on the specifics of an online business, they could potentially have many different assets associated with their company. However, not all of the assets that they possess could actually be owned by the business itself. 

For example, having any leased or loaned equipment or property will result in their worth being valued at far less. Therefore, it is important for entrepreneurs to take the time and look through asset ownership to confirm that the business fully owns any and all of their assets before committing to purchasing the online business.

Completing all of this due diligence will ensure you don’t get stuck with a lemon. To get started on finding the perfect online business to purchase, visit Flippa today.

The 3 Biggest Challenges of Growing an Online Business

The 3 Biggest Challenges of Growing an Online Business

Over 65 percent of people in America still believe that the American Dream is within reach. However, they also believe that in order to do so requires a certain level of financial stability. The best way to achieve this is to become an entrepreneur and eventually sell your business for a big profit. However, this means you need to begin an online startup and grow it to a decent size.  

Unfortunately, this is often easier said than done, especially when 20 percent of startups fail within their first year. Therefore, in order to get to a point where the company can be sold for a significant chunk of money, it first needs to focus on circumventing the common challenges facing online businesses and finding a way to successfully grow itself. Here are the five biggest challenges of growing an online business and how to overcome them. 

Fierce Online Competition

In many ways, competition is the foundation of capitalism. However, when it comes to operating a small online business, competition can often be overwhelming. Having a little bit of friendly competition is good for business because it forces companies to be innovative. Unfortunately, when it comes to the online marketplace, there seems to be simply too much competition in most industries nowadays. In fact, there are as many as 24 million e-commerce sites in the world. This can often make it hard to find ways to stand out amongst the endless sea of other competitors. 

Luckily, there are a few things that can be done to improve the chances of potential customers noticing your online business before any of your competitors. One of the most effective things to do is to ensure that your website is developed in a professional style that is in compliance with the current Google algorithms. This will help on two distinct fronts. 

Firstly, it will help your online business rank higher in search results, which will lead to higher click-through rates. The second way in which this will assist you is by being eye-catching as soon as the web page loads. Being greeted with a professional-looking website can often be enough to convince a customer to do business with you.

Retaining Customers

Getting new customers to visit your site is only part of the challenge online entrepreneurs face. Once they are on your site, you need to find a way to convert them into returning customers. Having a loyal customer base that repeatedly does business with your site can help to vastly improve your annual revenue. 

Not only will it result in more sales, but it will also lower your costs. This is because acquiring a new customer often costs up to five times as much as retaining a current customer. Therefore, online companies need to find a way to retain customers as much as possible. 

Unfortunately, there is no magical shortcut to ensure customer retention. It requires improvement in every part of the customer experience. However, improving the return and refund policy of your online business is a great start. 

When a customer is new to a site, they often have some hesitancy about the product or service quality. In order to help ease their anxieties, successful online startups offer an extremely easy return process. This allows customers to simply send the item back within a certain period of time and receive a full refund if they are not satisfied with a product or service. 

So if you want to retain more customers, then you need to make your return and refund policies very simple. This involves having as few steps as possible and following through with your promise to return the customer’s money. This will make the customer much more comfortable with an online business and a lot more likely to continue doing business with them in the future. 

Getting Sufficient Revenue

It is obvious that to be a successful online business, you need to get a lot of revenue. What is not obvious is how to go about doing this. There are a lot of different methods that can be used to help improve revenue. Some of the most popular include lowering product prices or reducing operations costs. However, one of the most sustainable ways to get higher amounts of revenue is to increase sales numbers. 

Once again, there are numerous ways to go about this. An effective place to start is with the website’s design. It needs to have a layout that is incredibly easy to navigate and a purchasing process that is as short and simple as possible. This will help minimize the frustration that customers experience when dealing with the website, which will help to vastly improve sales numbers. 

By overcoming these three challenges, your online business can quickly reach a point where it can be sold for a significant amount of money. Once your company is at a point where you are ready to sell it, visit Flippa to get it sold as quickly as possible for the maximum amount of money.

Achieve Success Faster By Purchasing an Online Business

Achieve Success Faster By Purchasing an Online Business

Many entrepreneurs think that they will be able to launch their startup and find success within the first year. However, they are soon hit with the reality is that this almost never happens with an online business. 

In the majority of cases, it takes much longer than that to achieve any measurable success. In fact, in most cases, it can take as much as four years before seeing any kind of significant revenue. 

A lot of people do not want to have to wait this long to achieve success with their business. These people will either end up losing interest or funding long before they reach the one year mark. Luckily, there is a way to find success faster by doing one simple thing. By buying an already existing online business, entrepreneurs can help to jumpstart their startup success story by months or even years. 

Thriving Customer Base

Finding and retaining customers in the online marketplace is the third biggest challenge that online businesses reportedly face. Therefore, when they are able to start with an already present customer base, it makes the challenge much less daunting.

Thankfully, if an online business is up for sale, that means it will have already been in full operation for at least several months. During this time, it should have gathered quite a few new and loyal customers. In addition to customers, it should also have a developed email marketing list. The entrepreneurs will take possession of both of these once they purchase the site. 

Therefore they can focus a lot of their attention on things like improving products and altering the website layout. This saves them from having to spend a lot of time trying to entice new customers to visit the site. 

Developed Social Media Presence

Considering the fact that 75 percent of customers use social media as part of their purchasing process, it is incredibly important for online businesses to have a strong social media presence. However, in order to do so, they need to make a lot of social media posts on all major platforms. 

Developing fully fleshed-out Facebook, Instagram, Twitter, LinkedIn, and other accounts are something that takes at least several months to do but can often require years of effort. This can be easily circumvented by instead purchasing an online business that has already spent all of this time and effort creating engaging social media accounts. 

Depending on how long the online business was in operation for and how large it grew to be, it could have a total follower count upwards of 1,000 people. This is something that can help put the entrepreneur a lot closer to achieving success with the online business. 

Finding Successful Business Operation Tactics

When someone builds a company from the ground up, they’ll have no basis for what kind of tactics work. This is unless they have previously run an online business that is very similar to their current one. Having no frame of reference for successful business tactics will force them to do a lot of trial and error. 

This can often lead to a lot of time and money being put towards something that then ends up failing. It is during this process of trying to figure out what combination of tactics to use that an online business often runs into financial problems that lead to it closing its virtual doors. 

When you decide to buy an online business, a lot of the trial and error will have already been done for you. If the online business has grown to a point where you are interested in buying it, then it means that the combination of tactics that it is using must be at least mostly successful. 

Therefore, it is very likely that you may only need to apply small changes to maximize the business’s performance. This will end up saving you a ton of money and effort and help you achieve success a lot faster. With all of these great benefits, it is no surprise that so many entrepreneurs choose to buy an online business. To buy some of the best online businesses out there for some of the best prices, then visit Flippa today.